State pensions: the major changes

The state pension has undergone a major overhaul in the last year, with the government aiming to create a fairer and simpler system for all to understand. But in reality, the waters appear to be muddier than ever when it comes to understanding what you're entitled to from the state.

This article will explain the key changes and how you may be affected.

What are the major changes and who is affected?

The revamped state pension came into effect on 6 April 2016 when the old two-part state pension was replaced with a new flat-rate payment. Those who received their state pension before this date were unaffected by the change, but the flat-rate system applies for those reaching their retirement age on or after 6 April 2016.

National insurance contributions

One of the biggest changes surrounds national insurance contributions (NICs). For example, under the previous system you could claim your minimum entitlement even if you have only paid NI for a few years but now you must contribute for at least 10 years to collect the minimum payout.

According to Age UK, more than 50,000 women and 20,000 men in their 50s and 60s are the hardest hit by the changes as they will receive no state pension whatsoever.

In order to obtain the full state pension of £159.55 a week, you must make NICs for 35 years – meaning you must pay for 5 years longer than the previous system, which required 30 years of NICs.

What classes as a national insurance year?

A national insurance year works alongside the tax year, so for this moment in time from 6 April 2017 until 5 April 2018. You need to earn a set amount of money through employment and make 10 contributions to complete a full national insurance year.

When will you get your state pension?

You will receive your state pension when you reach the government’s official retirement age. The exact date depends on your gender and when you were born.

The state pension age is slowly being raised over a period of time. For instance, many women currently get their state pension at 63 years old and men at 65 but both genders will get their state pension at 66 by 2020. Alarmingly, 26% of over-55s were unaware the state pension age would rise from 65 to 66 between 2018 and 2020, according to CIPD research.

The same study, which polled 1,600 workers in February, revealed nearly half (48%) of those aged 35 to 54 knew state pension age will increase from 66 to 67 between 2026 and 2028. The decision to bring women's state pension age in line with men's is nothing new; it was first announced by then-chancellor Kenneth Clarke back in 1993. But women have been worst hit by the most recent changes. On one hand, Helen, who was born on 4 July 1953 and reached the state pension age of 63 on 6 March 2017. On the other hand, Rosemarie, who was born 7 months later on 4 February 1954, had her retirement age pushed back almost 3 years and will not retire until 6 May 2019.

How can I fill gaps in my state pension?

If you’re concerned you may not receive the full state pension, there are ways to build your state pension. It is worth you spending time to weigh this up as it will depend on your individual circumstances, such as living abroad, having low earnings or failing to claim benefits while unemployed. Then it’s worth considering:

how many existing years you already have

have you got enough disposable income to make it worthwhile

will you live long enough to enjoy the benefits of a full state pension.

If you have a gap in your NICs or fall short of the 10-year threshold required to qualify for the minimum state pension, you may be able to buy additional national insurance years to increase your entitlement.

You must be eligible to pay NICs for the time the contributions cover and you can typically pay gaps in your NI record from the past 6 years. You can sometimes pay gaps from more than 6 years ago depending on your age. For example, you have until 5 April 2018 to make up for NICs missed in 2011/12.

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